MENU

Why I think Transurban Group (ASX:TCL) is a buy for its 4.8% dividend yield

There’s not much worse than driving in peak-hour traffic. 

But investors in Transurban Group (ASX: TCL) are laughing all the way to work each morning. 

You see, Transurban is the toll-road king here in Australia.   

It provides a faster road option than previously existed, while saving the government money.  And drivers are willing to pay for that valuable time saving. 

Like Sydney Airport Holdings Pty Ltd (ASX: SYD), this company has monopoly-like qualities. 

Transurban develops, manages and maintains toll-road networks in Melbourne, Sydney and Brisbane.  The company has also expanded to the United States and recently Canada. 

It targets relatively affluent cities which are badly congested and expected to have strong traffic increases over time, due to population growth and increased demand for road freight transport. 

While toll-road operators are sometimes seen as the bad guy, these roads make our cities much more efficient, generating billions of dollars of savings in the economy.  

Performance  

As you might imagine, Transurban is somewhat of a cash machine. 

Once the hugely expensive road is built and becomes operational, the income starts pouring in. 

Over the last 10 years, shareholders have received a total return of 13.3% per annum. 

After moving to a more sustainable distribution policy in 2009, distributions have grown by almost 11% per year on average. 

Future Growth  

The growth story is underpinned by toll increases, which are contracted to rise with inflation at a minimum, in most cases more. 

I think further acquisitions can be expected over time, in cities that meet its investment criteria. 

On top of that, increasing traffic numbers and population growth will be a handy boost to the bottom line. 

The company also has major projects underway like the West Gate Tunnel Project in Melbourne, expected to be completed in 2022, and the opportunity for road extensions and upgrades to its current network. 

Foolish takeaway  

Transurban looks set to benefit from increasingly populated and congested major cities. 

The company does carry a fair amount of debt, which means as interest rates steadily rise, this could dampen the growth rate. 

At the time of writing, the current dividend yield is around 4.8%, partly franked. 

With the share price down 10% from its high, this could be a decent entry point for investors looking for a solid and growing income stream. 

If you prefer to avoid companies with debt, there’s plenty of other quality stocks out there for dividend investors. 

This “Holy Grail” Technology Could Produce World’s First Trillionaire

One of the world’s richest people is sounding the alarm on what could be a trillion-dollar technology.

And when a tech billionaire – several times over – speaks, it pays to listen.

This could be your chance to get in on the ground floor!

Click here to discover a $19.9 trillion dollar idea — hidden in plain sight!

Motley Fool contributor David Gow owns shares of Transubran Group. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.